Will the minimum payment take care of your debt? Not likely

On Behalf of | Aug 28, 2021 | Bankruptcy

Though paying bills is often one of the significant downsides to adulthood, most Tennessee residents pay their bills as necessary. Even if they cannot pay off everything in full, they do their best to make the minimum payment. However, if you find yourself only making the minimum payment on your liabilities and struggling to do even that, you may not be keeping up with your bills as well as you hope.

Certainly, making the minimum payment every month can prevent your account from defaulting and prevents late fees, but beyond that, there is little benefit from paying the least amount possible. You may notice that your outstanding balances continue to grow as interest — sometimes a significant amount — compounds on your account every month. You may fear there is no end in sight.

Can you pay a bit more?

In some cases, adding even just a bit more to your monthly payment could see some decrease in your outstanding debt. However, you may not have any extra funds to put toward a particular payment without causing you additional financial stress elsewhere. If paying more on a particular credit card bill is unlikely, perhaps you could consider no longer using that card or only using it for emergencies.

If you only make the minimum payment and continue to increase your balance with purchases, you will likely continue to chase that balance with little hope of catching up. Additionally, as your balance increases, the percentage of credit you use also increases. This percentage is known as your credit utilization ratio, and it has a substantial influence on your credit score. The higher the ratio, the more negative an impact it has on your credit score.

What are your other options?

If you find yourself unable to make more than the minimum payment and your balances continue to increase, you may want to consider other options for handling your debt. In particular, bankruptcy may be worth exploring. Though this debt relief method often gets a bad rap because it can have a negative effect on a credit score, it can often help struggling individuals get back on track financially. Plus, if you only make the minimum payment and your credit utilization ratio is high, your credit score has likely already suffered.

Moving forward with bankruptcy is certainly a major step for anyone, and it is not something you want to enter into lightly. As a result, it may benefit you to gain more information on this option and how it could affect your particular circumstances.

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